Stephen Mann's Blog

It’s been a long time coming; I’ve been having conversations around ServiceNow’s IPO or their acquisition by another vendor for as long as I have been an IT analyst (and that’s late 2008). Last night its initial public offering price was set at $18 (above the previously expected $15-17 range – yes, even after what happened to Facebook) and I assume trading will have commenced by the time you are reading this blog.

But I’m not a market analyst, I’m an IT industry analyst … so bar there being a major hiccup with the valuation post-trading the real meat for me is what it all means for ServiceNow, its customers, and the IT service management tool market. And let’s not forget other software markets that it no doubt has its eyes set on. Build a platform and then exploit it – why not?

So let’s get you up to speed with ServiceNow

ServiceNow was started by Fred Luddy, the ex-CTO of Peregrine Sytems, in 2004 with the intention of making a better IT service management (ITSM) tool: "The IT industry deserves a tool that just works. We're going to give it to them." So much has happened since then: rapid growth in customer numbers and revenues (and market share), in employee numbers, and in the solution’s capabilities. In capability terms, today’s offering is a radically different beast to the initial offering – SaaS (or more specifically its PaaS) has allowed ServiceNow to grow the offering at a spectacular pace.

Where is ServiceNow now? Some quick facts and opinions

Without boring you with a ten page overview of the current ITSM tool market and ServiceNow’s capabilities, ServiceNow sits with the two previous heavyweights of the ITSM tool space (BMC and HP). BUT ServiceNow is more than just a SaaS ITSM tool:

While once differentiated by SaaS, it no longer is. One could argue that ITSM tool buyers might look at ServiceNow and value its “SaaS credentials” in the larger ITSM tool marketplace, but it is not selling on SaaS. ServiceNow is selling on capability and on meeting customer needs for modern enterprise technology.

ServiceNow delivers against the core enterprise-level ITSM requirements and beyond but, importantly, it is a Platform-as-a-Service, and large financial institutions in particular have been quick to see the potential for using it to also “host” home-grown applications or services.

ServiceNow hit and then quickly exceeded 1000 customers at the start of 2012; of which enterprise-level customers include the likes of GE, Deutsche Bank, Johnson & Johnson, Home Depot, Boots, BNP Paribas, Intel, Google, Coca-Cola, Centrica, UBS, and Morgan Stanley.

Finally, ServiceNow has a somewhat fanatical user base – customers love the company and its ethos, they love the tool, and they love using the tool. In many ways ServiceNow has taken the usability of the software we use in our personal lives such as FaceBook, iTunes, and Amazon and brought it into the workplace. Consequently, ServiceNow’s customers have been a secondary sales force.

So let’s look forward … OK, we might need to take stock of the last twelve months first …

The prelude to IPO and associated risks

The above section might seem a little too much like a “puff-piece” so let me balance it with the risks I normally communicate to Forrester clients (after all I am an analyst and need to see the good, the bad, and ugly):

The road to IPO has been supported by massive changes to ServiceNow’s senior management team. While I appreciate that this might have been necessary (how few know how to successfully take a company through IPO?) I have concerns about how this will affect the ethos and culture of ServiceNow – remember this is part of what existing customer love about ServiceNow.

There has been a massive sales person recruitment drive. Has ServiceNow been overly focused on selling to achieve maximum IPO valuation? I feel it has. The ITSM tool market has a sad legacy of tools being bought without the anticipated benefits being realized – often due to a disconnect between requirements, sales, implementation, and use. I truly hope that ServiceNow has ensured that they haven’t “joined the club?” Failure to do so will adversely affect both reputation and customer satisfaction. Also, as with any organization experiencing rapid growth (sales and employees) there are risks related to corporate sustainability and growth-related implosion.

However, previous concerns flagged to both ServiceNow and Forrester clients re the use of third parties for implementation professional services (a byproduct of ServiceNow’s rapid growth and a focus on subscription sales) have started to be addressed – with ServiceNow managing enterprise implementations internally again.

So what does this all mean?

What it means (WIM): for ServiceNow, ServiceNow partners and other ITSM tool vendors

For ServiceNow, of course there is the money to further invest in growth, whether organic or by acquisition (though I’m sure they still have venture capital money in the bank):

Will the better professional service partners be acquired or will they cherry pick people (where partner contractual arrangements don’t inhibit this) to bolster their internal capabilities? Where will this leave existing partners? Or will they just take on many new partners?

How quickly will they return to building on their late-2000s vision of “ERP for IT” and extend beyond this (see the final WIM section below)?

But to me what being public really means is that ServiceNow is now more “reputable,” for want of a better word. Not being public will most likely have lost them big deals in the past, for example due to risks related to them being a “going concern.” Personally, I’ve always found ServiceNow interesting as a private company in that they have never been slow to offer up information around revenues and customer numbers when others have (hiding behind the “as a private company we do not disclose such information” mantra).

The money side of things will also impact their people. I have no idea which ServiceNow employees have shares, what they are worth, and what the tie-in is. How many of these possible millionaires will want to deal with the confines of a much larger public company? How many will just want to do their own thing now they have the funds? ServiceNow acquired a “who’s who” of IT talent over the last few years, how much will stay and how much can be replaced if they don’t?

Finally, there is the necessary and potentially bountiful push into new territories (not that there still aren’t many opportunities in existing territories). There are still many parts of Europe where ServiceNow needs to raise its profile and presence. Then there are emerging markets such as the Middle East, which has matured rapidly, and the BRIC countries. There are so many ITSM opportunities for ServiceNow but they are also there for its competitors, with BMC in particular having been “revitalized” on the back of its SaaS offerings and partner network. Looking out to 2014, how ServiceNow deals with the risks I outline above (along with the final WIM below) will make a massive difference between significant growth and “domination.”

WIM: for customers

I do worry for existing ServiceNow customers. They bought into Fred’s vision. They bought into Fred’s product. They bought into Fred’s people. Post-IPO, how many of these things will remain?

In some ways, Fred’s vision escaped the confines of ServiceNow and can now be seen at other vendors (and I don’t just mean they have a SaaS tool). If you look at Hornbill for instance, they are currently sweating customer-centricity. In many respects, but not all, ServiceNow has helped to make the ITSM tool market place a far better place for customers; everyone has raised their game and improved the focus on business outcomes rather than the ITSM software or technology itself. Whether ServiceNow can continue down the path Fred started it on, I really don’t know. I have concerns as do customers I am sure.

What I am certain of is that that the product will continue to hit the spot for many customers, just don’t try to customize things that shouldn't be customized. I’m also sure that many of the key people will no longer be there. They can afford not to be and life is too short. Hopefully those that do stay and those that join post-IPO can continue to hold true to Fred’s ideals in the context of being in a large public organization.

I’d be very interested to hear how customers feel.

WIM: for other tool vendors

As a throw away WIM, I’m certain ServiceNow has big plans post-IPO. They are a platform not a SaaS-delivered ITSM tool. I fully expect them to offer a wealth of new and improved capabilities that not only help IT organizations operate but also help organizations operate. Why wouldn’t they consider creating a CRM solution, a HR solution, or a financial solution? So while competitors such as the Big 4 currently look across at ServiceNow, I wonder if Oracle, SAP, and Salesforce are doing the same? I would.

Finally, I need to finish …

I’m sure there is more but this is only a blog (that is now way too long). What do you agree or disagree with? What did I miss? Please let me know.

Comments

Good piece. Just a quick note to wish all the ServiceNow folks good luck with the new venture.

What did you mean by the Hornbill comment, "...they are currently sweating customer-centricity"?

As you know from all sorts of sources and events, customer centricity or 'outside-in' as its nicknamed, is a fundamental starting point for any service support regime and service management initiative. Starting there helps ensure relevance, targeting the right issues as well as the right places to seek efficiencies.

IMHO the traditional ITSM approach has lacked this emphasis and given lip service to the customer. Its focused on capabilities, processes, best practices, and creating a service centered face to the customer. Nailing on social media only adds to the variety of ways in which a service provider can interact with its customers and prospects - but it does not represent a deliberate 'customer engagement strategy', as required by an outside-in thinking service provider.

Do you think traditional ITSM vendors can easily adapt to what is termed the 'next generation' of service management thinking given the obvious and quite lucrative returns available from hanging more shiny objects on the existing 'inside-out' approach?

The reference to Hornbill was based on its commitment to "more than selling ITSM software." I guess that it is at the forefront of my mind at the moment across a number of customer-centric activities. Whether it's software capabilities such as "Human Touch" (so service desk agents know more about callers and are better positioned to treat them as customers), through active participation in industry and its own customer events, or the recent success at the SDI awards. I'm sure I could have called out another vendor but they do seem to be "sweating customer-centricity" to me.

In terms of the final question, it's definitely not easy to move from selling "technology-delivered capability points" to something that delivers positive business outcomes from a customer perspective. I totally agree that it is too easy to just start using the "right vocabulary." I'd like to think however that customers of tools, and customer of organizations using said tools, are becoming far more enlightened as to what they want and need (and to what they are entitled to). Also, with the ability to cut through marketing hyperbole.

As a mentioned to you while we were in Paris, vendors (well their marketing departments) that use phrases like "ITIL-as-a-service" or "get 11 ITIL processes in 30 minutes" are so off the pace from a marketing perspective that one has to question their ability to provide technology-enabled capabilities and the necessary envelope of people and process enablement that those that are "doing" service management really need.

I think Stephen's comment about Hornbill "sweating customer-centricity" relates to our focus on helping our customers achieve their objectives, which was behind our recent SDI award for IT Service Supplier of the Year.

Our customers (like most IT organizations) are being asked by their businesses to squeeze the most from their resources, improve service performance and reduce costs. Based on our experience in the field, we simply took the things we knew would work, helped customers to deliver, then showcased their achievements to encourage other customers to do the same. It has paid off, with several customers winning awards for their achievements.

As you know from our conversations in the past, we're keen to promote best practice, but even keener to find ways of taking our community to new heights of achievement. Inside-Out thinking is not the quickest route to delivering business value, but delivering successes helps pave the way to getting the IT voice heard. Next generation service management demands an Outside-In approach that starts with the customer and their service experience.

We know what business we are in and we've asked ourselves "How do we help our customers succeed?" We've taken simple steps that enable them to look better in the eyes of their customers. However, we have much more work to do in educating our community that the shortest route to value starts with the customer and their service experience. Watch this space - the best has yet to come.

Stephen, Pat - good to read at least some recognition that we cant just keep nailing shiny objects onto what is a tired strategy of reengineering support processes based upon one incomplete framework or another and that some vendors at least are starting to look around them at what successful support is all about.

I think we can all cite a case where in our normal lives we received good, bad or plain ugly service and the follow up - the 'support' could be similarly described. Knowing and appreciating the customer situation. Empathizing with their experience and emotions, and treating them as designed (in-out or hug) is what service support was always about. Having tools that support this return to the true scope of service support, that avoid throwing a 'do it this way' blanket over matters - remains a goal for many.

I'm hopeful that real soon one of the vendors will break away from the pack and be bold enough to explain and show what Pat was speaking to - but thats my bias on outside-in showing again... Adding more ornaments to the Xmas tree may work for some, but increasingly as you suggest Stephen, I feel the punter, the customer in all this is fast becoming very, very sensitive to what they really need in the way of tomorrow's service support tools, today.